Australia’s Household Debt Crisis Looms

Today in the news, former economics advisor John Adams revealed that Australia is too late to prevent an ‘economic apocalypse’ regardless of his repetitive warnings to the political elites in Canberra. He continued to urge the Reserve Bank to raise interest rates to prevent household debt getting further out of hand.

This bubble is very easy to explain. Confidence! It’s the misconstrued perception that Australia’s last 20 years of continued economic growth will never encounter any sort of correction is most unsettling. Australia survived the GFC and a mining boom and bust. Meanwhile, Sydney and Melbourne house prices have not missed a beat or taken a backward step. Regrettably, the decision makers and powerful elite in this country live in these two cities, and see Australia’s economic challenges through an entirely different lens to the rest of the country. It’s a two-speed economy spiralling uncontrollably.

I acknowledge that this looming crisis isn’t just as straightforward as house prices in our two largest cities, however the median house prices in these cities are ever rising and contribute greatly to total household debt. The specialists in Canberra realise there’s an inflamed house market but appear to be reviled to take on any substantial efforts to correct it for fear of a property crash.

As far as the remainder of the country goes, they have an entirely different set of economic considerations. For Western Australia and Queensland specifically, the mining bust has sent property prices tumbling downwards for years now.

Just one of the signals that demonstrate the household debt crisis we are beginning to see is the rise in the bankruptcy numbers throughout the entire country, specifically in the March 2017 quarter.(source: https://www.afsa.gov.au/about-us/newsroom/media-release-regional-personal-insolvency-statistics-march-quarter-2017).

In the insolvency sector, our firm are seeing the adverse effects of house prices going backwards. Although not the primary cause of personal bankruptcies, it evidently is a significant factor.

House prices going backwards is just part of the dilemma; the other thing is owning a home in Australia allows lenders to put you in a very different space as far as borrowing capacity. To put it simply, you can borrow a lot more if you are a home owner than if you are not a home owner. I bankrupt people everyday and the amount of debt fluctuates significantly from the non-home owner to the home owner. Lending is founded on algorithms and risk, so I suppose if you own a home you’re more likely to have stable income and less likely to wind up bankrupt, so in turn you can borrow more. If you own a home in Sydney and Melbourne, you’re a safer risk than if you own a home in Mackay, simply because in one area the median house prices are booming and the other is going backwards, as it’s been doing so for years.

In conclusion, it appears we are running into a wall at full speed, and there are very few people suggesting we slow down. If you want to know more about the looming household debt crisis then call us here at Bankruptcy Experts Newcastle on 1300 795 575 or visit our website for more information: www.bankruptcyexpertsnewcastle.com.au

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